UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q   S QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended June 30, 2008  £ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ___ to ___  Commission File No. 000-30951  SILVERGRAPH INTERNATIONAL, INC.(Exact name of registrant as specified in its charter)NEVADA
(State or other jurisdiction of incorporation or organization)67-0695367
(I.R.S. Employer Identification No.)11919 Burke Street, Santa Fe Springs, CA
(Address of principal executive offices)90670-2507
(Zip Code)(562) 693-3737
(Registrants telephone number, including area code)  The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes S No £  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:  Large accelerated filer £
Non-accelerated filer £Accelerated filed £
Smaller reporting company S  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes £ No S  The number of shares outstanding of the registrants common stock as of August 18, 2008 was 61,450,976.   TABLE OF CONTENTS  PART I  FINANCIAL INFORMATION  Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of June 30, 2008 4 Condensed Consolidated Statements of Operations for Three and Six Months Ended June 30, 2008 and 2007 5 Condensed Consolidated Statements of Stockholders Deficit as of June 30, 2008 6 Condensed Consolidated Statements of Cash Flows for Six Months Ended June 30, 2008 and 2007 7 Notes to the Condensed Consolidated Financial Statements 8 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 29 Item 4T. Controls and Procedures 29  PART II  OTHER INFORMATION  Item 1. Legal Proceedings 30 Item 1A. Risk Factors 30 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35 Item 3. Defaults Upon Senior Securities 35 Item 4. Submission of Matters to a Vote of Security Holders 36 Item 5. Other Information 36 Item 6. Exhibits 36 Signatures 37   2    PART I  FINANCIAL INFORMATION  ITEM 1. FINANCIAL STATEMENTS  The financial information set forth below with respect to our balance sheet as of June 30, 2008 and our statements of operations for the three and six month periods ended June 30, 2008 and 2007 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and six month periods ended June 30, 2008, are not necessarily indicative of results to be expected for any subsequent period.   3   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS  June 30, 2008December 31, 2007ASSETS(unaudited)Current assets:Cash and cash equivalents$7,513$17,737Accounts receivable, net of allowance for doubtful accounts, adjustments and sales returns of $0-21,092Total current assets7,51338,829Property and equipment, net of accumulated depreciation of $603,166 and $577,84315,499149,846Total assets$23,012$188,675LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable$211,744$214,788Accrued expenses50,493184,633Line of credit42,55743,593Capital lease obligation, current-21,362Convertible promissory notes190,000-Due to shareholder13,70121,701Total current liabilities508,495486,077Note payable-280,000Convertible notes payable-790,000Total liabilities508,4951,556,077Mandatory convertible notes payable-543,500Commitments and contingenciesStockholders' deficit:Common Stock, $0.001 par value, 100,000,000 shares authorized: 61,450,976 and 36,056,265 shares issued and outstanding, respectively61,45236,057Additional paid-in capital4,525,0452,295,623Accumulated deficit(5,071,980)(4,242,582)Total stockholders' deficit(485,483)(1,910,902)Total liabilities and stockholders deficit$23,012$188,675  The accompanying notes are an integral part of these condensed consolidated financial statements.  4   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)  Three months ended
June 30, 2008Three months ended
June 30, 2007Six months ended
June 30, 2008Six months ended
June 30, 2007Revenues$-$86,129$30,853$93,516Cost of Sales-77,92111,478145,690Gross Profit (Loss)-8,20819,375(52,174)Operating expenses224,607333,074437,303601,612Operating loss(224,607)(324,866)(417,928)(653,786)Other income (loss)(376,945)(454,770)(411,470)(540,327)Net Loss$(601,552)$(779,636)$(829,398)$(1,194,113)Net Loss per share, basic and fully diluted$(0.01)$(0.02)$(0.02)$(0.03)Weighted average shares outstanding, basic and fully diluted53,356,90636,018,76545,151,33736,009,390  The accompanying notes are an integral part of these condensed consolidated financial statements.  5   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT (UNAUDITED)  AdditionalCommonStockPaid-inAccumulatedSharesAmountCapitalDeficitTotalBalance, January 1, 200836,056,265$36,057$2,295,623$(4,242,582)$(1,910,902)Fair value of stock issued to consultant2,243,5722,244142,242-144,486Imputed interest on modification of conversion rates for convertible debt--333,375-333,375Conversion of debt and payables into common stock23,151,13923,1511,753,805-1,776,956Net Loss---(829,398)(829,398)Balance, June 30, 200861,450,976$61,452$4,525,045$(5,071,980)$(485,483)  The accompanying notes are an integral part of these condensed consolidated financial statements.  6   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  Six Months ended June 30,20082007Operating activitiesNet loss$(829,398)$(1,194,113)Adjustment to reconcile net loss to net cash used in operating activities:Depreciation41,48651,406Non-cash interest expense333,375505,964Net loss on fixed asset disposals40,362-Equity based compensation expense144,4863,750Changes in assets and liabilities:Accounts receivable21,09266,134Inventory-10,749Other assets-80,911Accounts payable and accrued expenses26,272(46,767)Net cash used in operating activities(222,325)(521,966)Investing activities:Net cash received on sale of fixed assets52,499-Net cash provided by investing activities52,499-Financing activities:Debt principal payments(1,036)-Principal payments on capital leases(21,362)(41,732)Proceeds from issuance of convertible notes payable and debt190,000790,000Repayment of advances from related party(8,000)-Net cash provided by financing activities159,602748,628Change in cash and cash equivalents(10,224)226,662Cash and cash equivalents, beginning of period17,73750,425-Cash and cash equivalents, end of period$7,513$277,087Supplemental cash flow information:Cash paid for interest$24,384$4,260Cash paid for income taxes--Non Cash Investing and Financing ActivitiesConversion of debt, accrued interest and payables to common stock1,776,956-  The accompanying notes are an integral part of these condensed consolidated financial statements.  7   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  NOTE 1THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES  The Company  Silvergraph International, Inc. ("Silvergraph" or the Company) is a designer, manufacturer, marketer and branded retailer of fine-art reproductions, art-based home decorative accessories, collectibles and gift products. Silvergraph's primary products are canvas and paper lithographs as well as other forms of fine-art reproductions. Silvergraph distributes products through a variety of distribution channels, including corporate and independently owned retail stores, independent dealers and strategic partners. We are currently assessing various strategies to best enhance value for our shareholders including combining with a larger organization that would benefit from our technology and platform. To that end, on a confidential basis, we have entered into formal discussions with multiple private companies, have raised interim bridge capital to support our operations and have taken significant steps to lower our cost of operations.  As of and subsequent to the share exchange described below, the historical financial statements included the combined accounts of Silvergraph LGT, LLC (Silvergraph LLC) and its combined affiliate Lee Graphic Technologies, Inc. (LGT, and combined with Silvergraph LLC also referred to as the Company). These financial statements were combined due to the following facts:  · The companies have been operated as one business over the past three (3) years,  · The managing member and owners of 28% of Silvergraph LLCs membership interests own 100% of LGT, and  · The business assets, liabilities, business contacts and intellectual property of LGT were transferred at no cost to Silvergraph LLC on April 1, 2006, which was merged into New Era Studios, Inc. (New Era) on June 9, 2006, which then consummated a share exchange with Pinecrest Services, Inc. (Pinecrest) effective June 23, 2006.  Culminating with the Companys share exchange effective June 23, 2006, the Company consummated a series of transactions as detailed below:  · On April 1, 2006, LGT transferred all of their business assets and liabilities to Silvergraph LLC  · Silvergraph LLC merged into New Era, a shell Nevada corporation, effective June 9, 2006, and  · On June 23, 2006, New Era was acquired by Pinecrest. The Company exchanged 100% of its outstanding common stock for 32,400,015 shares of Pinecrest common stock. The transaction was accounted for as a recapitalization with the Company deemed the accounting acquirer, and Pinecrest the legal acquirer. Additionally, the Company paid $280,000 to certain shareholders of Pinecrest for 15,000,000 shares of their outstanding common stock, which were immediately retired (See Note 3). This payment, along with other expenses associated with the share exchange, has been reflected as reorganization expenses in the Companys accompanying income statements. Simultaneous with the closing of the share exchange, Pinecrest Services, Inc. changed its name to Silvergraph International, Inc.   8   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  The Company (continued)  Intercompany balances and transactions have been eliminated in consolidation. The interim consolidated financial statements are unaudited, but in the opinion of management of the Company, contain all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position at June 30, 2008, and the results of operations and cash flows for the three and six months ended June 30, 2008 and 2007. The results of operations for the three and six months ended June 30, 2008 may not be indicative of the full fiscal year. The Company's audited financial statements as of and for the years ended December 31, 2007 and 2006 are included in its 10-KSB filing on April 15, 2008.  Going Concern  The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from its operations since its inception and has an accumulated deficit of $4,242,582at December 31, 2007 and $5,071,980 at June 30, 2008 (unaudited). Additionally, as of June 30, 2008, the Company had a working capital deficiency of $500,982 and a stockholders deficiency of $485,483. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Companys assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty that such efforts will be successful.  Revenue Recognition  The Company recognizes revenue from gross product sales, including freight charges, and revenues from the license of products, in compliance with Staff Accounting Bulletin No. 101 ("SAB 101") and No. 104 (SAB 104) which require that title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed and determinable, collectibility is reasonably assured, and customer acceptance criteria, if any, have been successfully demonstrated.  Impairment of Long-Lived Assets  Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. When such "triggering" events occur, the Company compares the carrying value of long-lived assets to the undiscounted expected future cash flows related to those assets. If this comparison indicates that impairment is present, the amount of the impairment is calculated using discounted expected cash flow using a weighted average cost of capital. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use are based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. Based upon Managements assessment, there were no indicators of impairment of its long lived assets as of June 30, 2008 or December 31, 2007.  9   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  Property and equipment  Property and equipment is stated at cost less accumulated depreciation and amortization. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization are computed on a straight-line basis over the following estimated useful lives:  Machinery and equipment5-10 yearsFurniture and fixtures7 yearsLeasehold improvementsLesser of 7 to 10 years or life of leaseComputer hardware and software5 yearsVehicles7 years  Equity-based compensation  The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R effective January 1, 2006, and is using the modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123R for all awards granted to employees prior to the effective date of SFAS No. 123R that remained unvested on the effective date.  The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with EITF No. 96-18: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services and EITF No. 00-18: Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.  Use of Estimates  The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used in the accounting for revenues, allowance for doubtful accounts, product returns and other sales allowances, inventory reserves, depreciation and amortization, lease guarantees, long-lived assets and income taxes. Actual results could differ from those estimates.   10   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  Significant customers  The Company made sales to a significant customer, comprising 81% of total sales during the quarter and six months ended June 30, 2008.  Earnings (loss) per share  Statement of Financial Accounting Standards No. 128, "Earnings per Share", requires presentation of basic earnings per share ("Basic EPS") and diluted earnings per share ("Diluted EPS"). Basic earnings (loss) per share is computed by dividing earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Weighted average number of shares outstanding have been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result of the Exchange transaction as if these shares had been outstanding as of the beginning of the earliest period presented. The 3,600,015 shares issued to the legal acquirer are included in the weighted average share calculation from April 15, 2006, the date of the exchange agreement.  Diluted earnings per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. In computing diluted earnings per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants will have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. As the Company had a loss in the three and six months ended June 30, 2008 and 2007, basic and diluted loss per share are the same. At June 30, 2008 and 2007, potentially dilutive securities consisted of outstanding common stock purchase warrants and stock options to acquire an aggregate of 835,770 and 780,770, respectively.  Fair value of financial instruments  The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these items. The carrying amounts of notes payable, convertible notes payable, its line of credit and capital lease obligation approximate fair value, because the related effective rates on these instruments approximate rates currently available to the Company.  The Company partially adopted SFAS 157 on January 1, 2008, delaying application for non-financial assets and non-financial liabilities as permitted. This statement establishes a framework for measuring fair value, and expands disclosures about fair value measurements.   11   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:  Level 1  quoted prices (unadjusted) in active markets for identical asset or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives.Level 2  inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges.Level 3  unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models.  In accordance with SFAS 157, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company had no financial assets measured and recorded at fair value on the Companys Condensed Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy during the three and six months ended June 30, 2008.  Recent Accounting Pronouncements  References to the FASB, SFAS and SAB herein refer to the Financial Accounting Standards Board, Statement of Financial Accounting Standards, and the SEC Staff Accounting Bulletin, respectively.   12   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  In December 2007, the FASB issued FASB Statement No. 141 (R), Business Combinations (FAS 141(R)), which establishes accounting principles and disclosure requirements for all transactions in which a company obtains control over another business. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier adoption is prohibited.  In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parents equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parents ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented.  In March 2008, the FASB issued SFAS No. 161 (FAS 161), Disclosures About Derivative Instruments and Hedging Activities  an amendment of FAS 133. FAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years beginning after November 15, 2008. The Company does not expect the implementation of FAS 161 to have a material impact on its consolidated financial statements.  13   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  NOTE 2 BALANCE SHEET COMPONENTS  Property and equipment as of June 30, 2008 and December 31, 2007 was as follows:  20082007Machinery and equipment$660,989$716,010Furniture and fixtures3,0513,051Computer hardware and software8,6288,628672,668727,689Accumulated depreciation and amortization(657,169)(577,843)$15,499$149,846  Depreciation expense for the three months ended June 30, 2008 and 2007 was $16,162 and $25,704, and $41,486 and $51,406 for the six months ended June 30, 2008 and 2007 respectively.  NOTE 3DEBT  Convertible Promissory Notes  In February 2008 the Company issued convertible promissory notes in the aggregate principal amount of $150,000 pursuant to a subscription agreement, dated January 25, 2008, as amended, between Silvergraph and Thomas G. Schuster and Antaeus Capital Partners, LLC, accredited investors. The subscription agreement provided that the subscribers would purchase a minimum of $100,000 and a maximum of $400,000 of 7% convertible promissory notes, due on June 30, 2008. In April, 2008, we issued an additional $40,000 of the convertible promissory notes to two accredited investors. As of June 30, 2008, aggregate borrowings under these convertible Notes Payable were $190,000.  The Company will pay all interest due and owing on each note by adding such amounts to the then outstanding principal balance of each note, thereby increasing the outstanding principal balance of each note. All the payments-in-kind shall accrue interest as though such amounts were original principal indebtedness. The Company will not pay any principal payments in cash prior to maturity. If the Company combines via merger, acquisition, reverse merger or similar process with a private company doing business in the wall art industry (the Combination), the outstanding principal amount of the notes together with all accrued but unpaid interest will automatically convert into shares of the Companys common stock at the closing of such Combination at the conversion price, discussed below. Each holder of a Note may convert in whole or in part the outstanding principal plus accrued but unpaid interest into the Companys common stock at a conversion price of the lower of $0.045 per share or $1.08 divided by the reverse split ratio declared by the Board of Directors as part of a Combination. In the event that the Company issues additional common stock, or securities convertible into common stock, at a price lower than the conversion price while these notes are outstanding, the conversion price of these notes will automatically adjust downward to such price at which the new common stock has been issued.  14   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  The conversion price of the note, however, shall never be adjusted to less than $0.01 per share. Additionally, if the Company does not complete an anticipated Combination transaction with a private company by June 30, 2008 whereby the private company owns up to 90% of the surviving entity, the conversion price shall automatically be reduced to the lower of (i) $0.002 or (ii) the conversion price that would cause the majority holder of the notes to own upon conversion the number of shares of common stock of the Company determined to be 51% of the outstanding common stock on a fully-diluted basis and the remaining holders of the notes to own a pro rata number of common shares of common stock of the Company. The Company also is required to register the underlying shares of the convertible promissory notes on its first filed registration statement subsequent to the issuance of such notes.  The notes will be secured by all of the assets of New Era Studios, Inc., our wholly-owned subsidiary, under a security agreement. Silvergraph may not prepay the notes and so long as the notes are outstanding, we must obtain written approval from the note holders for certain actions identified in the notes, including, but not limited to, the issuance of debt, acquisition or sale of a material asset and issuance of dividends to common stockholders. The security agreement will be null and void if the notes convert into a majority of Silvergraphs common stock. In addition, the holders of the notes have a right of first refusal on all equity financings contemplated by Silvergraph.  On June 30, 2008 Silvergraph and the holders of the 7% Notes due June 30, 2008 entered into a 2nd Amendment to the 7% Notes due June 30, 2008 that materially modifies the Notes according to the following:  1. Section 9.1 of the Note entitled Default  Applejack Art Partner, Inc.  The first sentence of said section shall be deleted and the following sentence inserted.  If the Company does not complete a merger transaction with a private company approved by the board of directors (Private Company), by the Maturity Date whereby the Private Company owns up to 96% of the surviving entity, the Conversion Price shall automatically be reduced to the lower of (i) $0.002 or (ii) the conversion price that would cause the majority holder of the Notes to own upon conversion the number of shares of common stock of the Company determined to be 51% of the outstanding Common Stock on a fully-diluted basis and the remaining holders of the Notes to own a pro rata number of common shares of common stock of the Company (the Liquidated Damages Shares).  2. Section 5.0(a) of the Note entitled Optional Conversion.  The Conversion Price (as defined in the Note) shall be lowered from $.08 to the lower of $.045 per share of common stock or the price per share of common stock (referred to as X) derived from the following equation:  X = .95/Y  X is defined as the price per share of common stock  Y is defined as the reverse split ratio declared by the Companys Board of Directors  15   SIILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  3. Section 2.0 of the Note entitled Maturity.  The Maturity Date shall be extended from June 30, 2008 to August 31, 2008.  Convertible Notes Payable  During 2006 the Company issued convertible notes payable (the Notes) in the aggregate principal amount of $325,000 and warrants to purchase 143,000 shares of our common stock to five accredited investors. The outstanding principal and interest on the Notes are payable by the Company on or before August 31, 2008. The notes bear interest at a rate of eight and one half percent (8.5%) per annum. The Company will pay in kind quarterly all interest due and owing on each note by adding such amounts to the then outstanding principal balance of each note, thereby increasing the outstanding principal balance of each note. All the payments-in-kind shall accrue interest as though such amounts were original principal indebtedness. The Company will not pay any principal payments in cash prior to maturity unless we close any equity financing or financings with gross proceeds totaling at least $2,000,000 and the blended equity offering price is less than $0.45 per share.  Each holder of a Note may convert in whole or in part the outstanding principal plus accrued but unpaid interest into the Companys common stock at a conversion price of $0.45 per share. In the event that the Company issues additional common stock, or securities convertible into common stock, at a price lower than the conversion price while these notes are outstanding, the conversion price of these notes will automatically adjust downward to such price at which the new common stock has been issued. The conversion price of the Note, however, shall never be adjusted to less than $0.01 per share. If the Company engages in any equity based financing or a combination of equity financings with gross proceeds totaling at least $2,000,000, the outstanding principal amount of the notes together with all accrued but unpaid interest will automatically convert into shares of the Companys common stock five business days after the closing of such equity financing(s), provided, however, that if the blended per share purchase price of the securities purchased in such equity financing(s) is less than the conversion price, the Company will have the option to redeem the outstanding principal and interest of the notes. If the Company does not elect to redeem the notes, the conversion price will be the price equal to a 10% discount to the equity offering price. In addition to the Notes, the Company issued 143,000 warrants to the five accredited investors. The exercise price of each warrant is equal to $0.65 per share. The warrants shall remain exercisable for a period of three years from the date of issue. The Company may compel the exercise of the warrants in full if our common stock trades at or above two and one half (2 1/2) times the exercise price for 15 consecutive trading days. Based upon the fair value of the Companys common stock at the time of the issuance of the Notes and warrants, the value of the beneficial conversion feature and warrants are immaterial and have, therefore, not been recorded in the Companys financial statements.  The subscription agreements we entered into with the five accredited investors require us to prepare and file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 registering the common stock issuable upon conversion of the notes (up to $2,000,000 original principal amount of notes) and 100% of the shares of our common stock issuable upon exercise of the warrants issued in connection with the purchase of the notes. These demand registration rights are, based upon the underlying agreement, best efforts from the Companys basis and include no penalties for not meeting such deadlines.  16   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  During 2007, the Company issued $465,000 of additional convertible notes and 204,600 warrants. These notes have the same characteristics as the notes discussed above, except that they convert into common shares at a price of $0.22 per share. As such, the conversion rates of the notes issued during 2006 were reset to $0.22 per share resulting in a beneficial conversion feature of $75,055 which was charged to interest expense during the quarter ended June 30, 2007. At December 31, 2007, $790,000 was outstanding under these notes.  Subsequent to the issuance of the securities discussed above, the Company issued Mandatory Convertible Notes Payable (See Note 4). These notes have the characteristics discussed below, including the right to convert into common shares at a price of $0.10 per share. As such, the conversion rates of all the Convertible Notes Payable reset to $0.10 per share, resulting in an additional beneficial conversion feature of $430,909 which was charged to interest expense during the quarter ended June 30, 2007.  On April 29, 2008 the $790,000 notes plus accrued interest thereon of $91,557 was converted into 11,926,906 common shares (at $.074 per share). As the actual conversion rate of $.074 was less than the conversion terms of the note, the Company recognized an additional interest charge of $248,907 during the period ending June 30, 2008 relating to the modification of the conversion terms.  Line of credit  The Company has a $50,000 revolving bank line-of-credit, which automatically renews unless an event of default occurs. Borrowings under the facility bear interest at the bank's prime rate plus 2% (8.5% at March 31, 2008). The facility is secured by substantially all of the Company's assets. At June 30, 2008 and December 31, 2007, the Company had $42,557 and $43,593 outstanding under this line of credit.  Note payable - stockholder  One of our shareholders loaned $280,000 to the Company in June 2006. In consideration of this loan, the Company issued a promissory note in the principal amount of $280,000, plus 7% interest per annum on the outstanding principal, which note was amended and restated in its entirety on August 14, 2006. The amended and restated note was originally due and payable by the Company on September 23, 2006. The Company issued a second amended and restated promissory note to extend the maturity date of the note from September 23, 2006 to December 31, 2006. The shareholder did not, pursuant to the terms of the amended and restated note, elect to require the Company to pay to it the outstanding principal balance and accrued interest on the note during the period beginning September 23, 2006 and continuing up to and including the issuance of the second amended and restated note on September 27, 2006. The second amended and restated note was amended and restated in its entirety by the Companys issuance of a third amended and restated promissory note on December 31, 2006, which extends the maturity date of the note from December 31, 2006 to June 30, 2007.During May 2007, the Company and the note holder agreed that upon the closing of a New Notes capital raise with net proceeds of at least $500,000, the note holder will agree to receive a cash payment of 10% of the net proceeds of the New Notes and convert the remaining balance to the New Notes or other security containing materially similar characteristics. As of December 31, 2007, $280,000 of this note payable was outstanding.  On April 2008, the $280,000 note and $31,251 of accrued interest was converted into 3,890,638 common shares (at $.08 per share).  17   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  Factor Agreement  During 2007, the Company entered into an accounts receivable factoring agreement. Such agreement provides the factor with a two percent (2%) fee on the face amount of any receivable factored, and an additional fee of one and one-half percent (1.5%) for every subsequent ten day period that such account is unpaid by the Companys customer. As of December 31, 2007, the Company had no accounts receivable subject to such factoring agreement, nor did the Company have any amounts due to such factor. During the first quarter of 2008, the Company cancelled this agreement.  Due to Shareholder  During 2007, the Company received $21,701 of advances from shareholders. This amount is due upon demand from such shareholders, and bear interest at a rate of ten percent (10%) per annum. The balances of such advances were $13,701 and $21,701 as of June 30, 2008 and December 31, 2007.  NOTE 4- MANDATORY CONVERTIBLE NOTES PAYABLE  During 2007 the Company issued mandatory convertible notes payable (the New Notes) in the aggregate principal amount of $543,500, which was outstanding as of December 31, 2007. The notes bear interest at a rate of ten percent (10%) per annum. The Company will pay interest via cash or in stock, at a 10% discount to the market price of the Companys common stock, quarterly. All principal and unpaid interest was due on August 31, 2009.  The New Notes have the following conversion provisions:  (a) Optional Conversion. On or before the payment of the Note in full, the Holder may convert the principal amount owing on this Note, together with all accrued and unpaid interest, into fully paid and nonassessable shares of Common Stock at a conversion price per share equal to $0.10 (the Conversion Price), subject to adjustment as set forth herein.  (b) Forced Conversion. Subject to the Corporations duty to reserve and keep available out of its authorized but unissued shares of Common Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Note, after two years of issuance, the Company may convert this Note if the price of the Companys Common Stock is equal to or above two (2) times the Conversion Price for a period of ten (10) consecutive trading days and the Companys 90 day average trading volume is equal to or above 25,000 shares per day and such shares shall be converted at the Conversion Price.   18   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  (c) Mandatory Conversion. Upon the establishment of the Class A Senior Convertible Preferredseries of stock by the Company entitled Silvergraph International, Inc. Certificate of Designation of Class A Senior Convertible Preferred Stock, this Note and accrued but unpaid interest shall immediately and automatically convert into Class A Senior Convertible Preferred Stock at a conversion price per Preferred Share equal to one dollar ($1.00).  Upon the Mandatory Conversion, this Note shall cease to exist and all rights and obligations of the Borrower and Holder shall terminate. The Company shall provide written notice to the Holder of the Mandatory Conversion including the date of the establishment of the Class A Senior Convertible Preferred Stock and shall issue to Holder fully paid and nonassessable shares of Class A Senior Convertible Preferred Stock as soon as reasonably practicable.  The holders of the New Notes shall have the right of first refusal on all equity financings contemplated by the Company. The Company will prepare and file a registration statement covering the resale of the Common Stock issuable upon conversion of the Note within 90 days after the issue date of the Note. The Company will use its best efforts to have the Registration Statement declared effective by the Securities and Exchange Commission with 90 days after the filing.  On April 29, 2008 the $543,500 notes plus accrued interest of $25,031 was converted into 7,094,444 common shares (at $.08 per share). As the actual conversion rate of $.08 was less than the conversion terms of the note, the Company recognized an additional charge of $112,731 during the period relating to the modification of the conversion terms.  NOTE 5EQUITY  On January 22, 2007 we entered into an agreement with RJ Falkner & Company, Inc. for a period of at least one year whereby RJ Falkner & Company, Inc. will provide investor relations support to the Company beginning February 1, 2007. The agreement requires the Company to pay a cash retainer of $3,000 per month in advance and to cover expenses. Further, the Company shall issue a total of 56,250 shares of its restricted common stock to R. Jerry Falkner in installments of 18,750 shares every three months until paid in full. The agreement allows the Company to halt issuance of future stock grants by agreeing to increase the monthly retainer to $5,000. The Company also agreed to issue R. Jerry Falkner a ten-year stock option to purchase 100,000 shares of the Companys restricted common stock with an exercise price of $0.72 per share. During the year ended December 31, 2007 the Company issued the 56,250 shares valued at $5,625 and included such cost as an expense in the accompanying statement of operations.  The agreement carries registration rights for the common stock to be issued whereby the Company agreed to register the shares with the Securities and Exchange Commission within 24 months of the start date of the agreement. Should the Company fail to register the shares, the previously granted option shall become a cashless exercise option  On May 6, 2008, we entered into a termination and settlement agreement with RJ Falkner & Company, Inc. whereby we agreed to issue 264,646 shares of restricted common (of which 175,010 had been previously delivered) in exchange for a release of all claims.  19   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  NOTE 6 DEBT TO EQUITY CONVERSIONS AND COMMON STOCK WARRANTS  Debt to Equity Conversions  On April 30, 2008 the Company issued 22,911,979 shares of restricted common stock to holders of the Note payable, Convertible notes payable and the Mandatory convertible notes payable in exchange for the retirement of the debt securities. Due to a change in the conversion rates of such debt during the quarter ended June 30, 2008, the Company recognized imputed interest expense of $333,375, which represents the estimated fair value of the additional common stock issued to such debt holders resulting from such conversion rate change. Furthermore, the Company issued 239,160 shares of its common stock in exchange for the settlement of $150,822 of accrued expenses during the six months ended June 30, 2008.  Common Stock Warrants  During 2006, the Company granted a warrant to purchase 488,170 shares of common stock in connection with professional services performed by the Companys Chief Financial Officer. The warrant is exercisable at $0.14 per share, has a five year term and is fully vested, with the Company holding a right to cancel 50% of the units underlying the warrant, with such right to cancel such remaining warrants decreasing ratably on a monthly basis over a one year period ending June 30, 2007, upon the occurrence of certain events as defined within the agreement. Based upon an amendment to the Companys agreement with its Chief Financial Officer, such cancellation right expired on December 31, 2006. The Company estimated the fair value of the warrant to be $30,174 as of the date of grant, all of which was expensed during 2006.  The fair value of the warrant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the periods indicated:  Dividend yield--Risk-free interest rate4.50%Expected volatility50.00%Expected life of options4 years  The Companys other outstanding warrants related to warrants issued in conjunction with the issuance of Convertible Notes during the third quarter of 2006 (See Note 3).  NOTE 7  INCOME TAXES  The Company did not provide for any Federal or state income tax expense during the quarters or six months ended June 30, 2008 and 2007 as a result of the availability of net operating loss carry-forwards. As of June 30, 2008, the Company had provided a 100% valuation allowance with respect to such Federal and state net operating loss carryforwards, as it cannot determine that it is more likely than not that it will be able to realize such deferred tax assets. This valuation allowance represents the difference in the Companys effective income tax of 0% and the Federal statutory income tax rate of 34% for the year ended December 30, 2007.  As of June 30, 2008, for Federal and state income tax purposes, the Company had approximately $2,200,000 in net operating loss carryforwards expiring through 2015. Internal Revenue Code Section 382 substantially restricts the ability of a corporation to utilize existing net operating losses in the event of a defined "ownership change". The Company has determined that there will likely be significant limitations on its ability to utilize its net operating loss carryforwards in future periods for Federal income tax purposes due to such ownership changes.  20   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  NOTE 7  INCOME TAXES (CONTINUED)  Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) an interpretation of FASB Statement No. 109, Accounting for Income Taxes. The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of June 30, 2008 and December 31, 2007, the Company does not have a liability for unrecognized tax benefits.  The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is subject to U.S. federal or state income tax examinations by tax authorities for five years after 2002. During the periods open to examination, the Company has net operating loss and tax credit carry forwards for U.S. federal and state tax purposes that have attributes from closed periods. Since these NOLs and tax credit carry forwards may be utilized in future periods, they remain subject to examination.  The Companys policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of June 30, 2008, the Company has no accrued interest or penalties related to uncertain tax positions.  NOTE 8  COMMITMENTS AND CONTINGENCIES  Consulting Agreement  The Company entered into consulting agreement with a consultant that was effective January 10, 2008. For a term of one year, the consultant will provide consulting services in connection with management consulting, corporate finance and shareholder communications and will use it best efforts to introduce the Company to various members of the financial community. In consideration for the consultants services the Company agreed to pay $1,000 per month until April 31, 2008 and $3,000 a month thereafter for the remainder of the one year term. The Company issued 1,000,000 shares, valued at $45,000, to the consultant upon the signing of the agreement and agreed to issue 800,000 shares to the consultant upon the closing of the Companys combination with a private company provided such combination occurred on or before March 31, 2008. As such combination did not occur as of March 31, 2008, the Company did not issue the additional 800,000 shares to the consultant. These shares are restricted and have piggy back registration rights. In the event that the consultant introduces the Company to an institution or individual that provides funding to the Company, then the Company will pay five percent of the total amount of the net transaction to the consultant.  21   SILVERGRAPH INTERNATIONAL, INC. AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)  Litigation  From time to time, the Company is involved in various legal proceedings arising from the normal course of its business activities. Any adverse outcome from these matters is currently not expected to have a material adverse impact on the results of operations, cash flows or financial position of the Company, either individually or in the aggregate.  NOTE 9  LETTER OF INTENT  During 2008, the Company signed a letter of intent to acquire a private company. Subject to various calculations, it is the intention of the parties for the Company to issue common shares such that the private companys shareholders will own approximately eighty-eight percent (88%) of the Companys common stock immediately subsequent to the close of such acquisition. In April 2008, the Company allowed the letter of intent to expire.  The Company is actively negotiating with multiple private acquisition targets.  22   In this quarterly report the words "we," "us," "our," and the "Company" refer to Silvergraph International, Inc. and New Era Studios, Inc. (as statutory successor in interest to Silvergraph LGT, LLC).  FORWARD LOOKING STATEMENTS  When used in this report, the words may, expect, anticipate, continue, estimate, project, intend, and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Companys future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors.  Statements made in this Form 10-Q that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent our best judgment as to what may occur in the future. These forward-looking statements include our plans and objectives for our future growth, including plans and objectives related to the consummation of acquisitions and future private and public issuances of our equity and debt securities.  The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as our representation or the representation of any other person that we will achieve our objectives and plans. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.  ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  Executive Overview  In 2007, we experienced significant challenges due to the unexpected contraction of our business with our largest client, Home Interiors & Gifts. In response, we attempted to accelerate the development of our in-house sales channel to home furnishings and accessory retailers. To that end, in July 2007 we hired an art sales, marketing and design company based in Seattle which brought to us an existing client base.  To service and grow the Seattle groups client base, we needed to raise capital that we were unable to accomplish on terms acceptable to us. Accordingly, we terminated our contract with the Seattle group in December 2007.  Separately, without sufficient resources we were forced to cease our investment in the development of TxTura. Given the challenges we were experiencing in developing sales channels and the unexpected contraction of our largest client, in December 2007, the board of directors determined that we should seek to merge with a larger art company with established sales channels which could benefit from our technology.  In 2008 and beyond, we are assessing various strategies to best enhance value for our shareholders including combining with a larger organization that would benefit from our technology and platform. To that end, on a confidential basis, we have entered into formal discussions with multiple private companies, have raised interim bridge capital to support our operations and have taken significant steps to lower our cost of operations.  23   Liquidity and Capital Resources  We derived our primary source of funds during the six months ended June 30, 2008 from the sale of additional equity and debt securities. Working capital as of June 30, 2008 was negative $500,982 as compared to negative working capital of $727,248 as of December 31, 2007. The cash balance at June 30, 2008 was $7,513 compared to $17,737 at December 31, 2007.  Net cash used in operating activities was $222,325 for the six months ended June 30, 2008, as compared to $521,966 for the six months ended June 30, 2007. During each period presented, we used net cash principally to fund our net losses. Net cash provided by financing activities was $159,602 during the six months ended June 30, 2008, as compared to net cash provided by financing activities of $748,628 for the six months ended June 30, 2007. Net cash provided by financing activities during 2007 was principally related to the sale of additional debt and equity securities of $790,000. The Company also issued debt securities during the six months ended June 30, 2008, netting proceeds of $190,000.  We have suffered recurring losses from operations and have an accumulated deficit of approximately $5,071,980 and $4,242,582 at June 30, 2008 and December 31, 2007. Additionally, as of August 18, 2008, we had cash and cash equivalents of $9,276 which, along with our accounts receivable, will allow us to sustain operations for approximately two months. Primarily as a result of our recurring losses and our lack of liquidity, we have received a report from our independent auditors for our financial statements for the year ended December 31, 2007 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. To continue our operations and to grow our current operations and to make acquisitions, if any, under our current business model during the next twelve months, we will need to secure additional working capital, by way of equity or debt financing, or otherwise. After this twelve month period, we may need additional financing for working capital, and in the case of acquisitions for payment of seller notes and future earned cash to sellers of acquired companies. There can be no assurance that we will be able to secure sufficient financing or on terms acceptable to us. If adequate funds are not available on acceptable terms, we would need to delay, limit or eliminate some or all of our proposed operations, and we may be unable to successfully promote our products or develop new or enhanced products or prosecute acquisitions, any of which could lower our revenues and net income, if we achieve profitability in the future. If we raise additional funds through the issuance of convertible debt or equity securities, the percentage ownership of our current stockholders is likely to be diluted, unless some of our current stockholders were to invest in subsequent convertible debt or equity financings, and some of the newly issued securities may also have rights superior to those of the common stock. Additionally, if we issue or incur debt to raise funds, we may be subject to limitations on our operations.  Debt to Equity Conversion  During 2006 and 2007 we entered into convertible equity financings in which we received an aggregate of $1,333,500. The terms of the convertible instruments are discussed below. On April 30, 2008 the Company issued 22,911,979 shares of restricted common stock to holders of, Convertible notes payable and the Mandatory convertible notes payable and the Note payable in exchange for the retirement of the debt securities. (See Note 6 to the financial statements.)  Convertible Notes Payable. During 2006 we issued 8.5% convertible PIK notes in the aggregate principal amount of $325,000 and warrants to purchase 143,000 shares of our common stock to accredited investors. During 2007 we issued additional 8.5% convertible PIK notes in the aggregate principal amount of $465,000 and warrants to purchase 204,600 shares of our common stock to accredited investors. We issued the notes and warrants pursuant to subscription agreements with each investor. The notes bore interest at a rate of eight and one half percent (8.5%) per annum. Each holder of a note could convert in whole or in part the outstanding principal plus accrued but unpaid interest into our common stock at a conversion price of $0.22 per share. We used the proceeds of this financing for general working capital purposes. The outstanding principal and interest on the notes were payable by us on or before August 31, 2008. We converted these notes into 11,926,905 shares of common stock.  Mandatory Convertible Notes. During 2007 the Company issued mandatory convertible notes payable (the New Notes) in the aggregate principal amount of $543,500, which was outstanding as of December 31, 2007. The notes bore interest at a rate of ten percent (10%) per annum. The Company could pay interest via cash or in stock, at a 10% discount to the market price of the Companys common stock, quarterly. All principal and unpaid interest was due on August 31, 2009. We converted the Mandatory note into 7,094,434 shares of common stock.  24    Note Payable. The Edward Brian ODwyer Separate Property Trust, one of our shareholders, loaned to New Era Studios, Inc., our wholly-owned subsidiary, $280,000 in June 2006. In consideration of this loan, New Era issued a promissory note on June 23, 2006 to and in favor of the ODwyer trust in the principal amount of $280,000, plus 7% interest per annum on the outstanding principal, which note was amended and restated in its entirety on August 14, 2006. The amended and restated note was originally due and payable by New Era on September 23, 2006, however, this note was amended and restated on three occasions and finally was extended to December 31, 2007. As of December 31, 2007, $280,000 of this note payable was outstanding and we converted this note into 3,890,640 shares of common stock.  Bridge Financing  In February 2008 the Company issued convertible promissory notes in the aggregate principal amount of $150,000 pursuant to a subscription agreement, dated January 25, 2008, as amended, between Silvergraph and Thomas G. Schuster and Antaeus Capital Partners, LLC, accredited investors. The subscription agreement provided that the subscribers would purchase a minimum of $100,000 and a maximum of $400,000 of 7% convertible promissory notes, due on June 30, 2008. In April, 2008, we issued an additional $40,000 of the convertible promissory notes to two accredited investors. We intend to use the $190,000 for debt repayment and working capital. The Company will pay all interest due and owing on each note by adding such amounts to the then outstanding principal balance of each note, thereby increasing the outstanding principal balance of each note. All the payments-in-kind shall accrue interest as though such amounts were original principal indebtedness. The Company will not pay any principal payments in cash prior to maturity. If the Company combines via merger, acquisition, reverse merger or similar process with a private company doing business in the wall art industry (the Combination), the outstanding principal amount of the notes together with all accrued but unpaid interest will automatically convert into shares of the Companys common stock at the closing of such Combination at the conversion price, discussed below.  Each holder of a Note may convert in whole or in part the outstanding principal plus accrued but unpaid interest into the Companys common stock at a conversion price of the lower of $0.045 per share or $1.08 divided by the reverse split ratio declared by the board of directors as part of a Combination. In the event that the Company issues additional common stock, or securities convertible into common stock, at a price lower than the conversion price while these notes are outstanding, the conversion price of these notes will automatically adjust downward to such price at which the new common stock has been issued. The conversion price of the note, however, shall never be adjusted to less than $0.01 per share. Additionally, if the Company does not complete an anticipated Combination transaction with a private company by June 30, 2008 whereby the private company owns up to 90% of the surviving entity, the conversion price shall automatically be reduced to the lower of (i) $0.002 or (ii) the conversion price that would cause the majority holder of the notes to own upon conversion the number of shares of common stock of the Company determined to be 51% of the outstanding common stock on a fully-diluted basis and the remaining holders of the notes to own a pro rata number of common shares of common stock of the Company. The Company also is required to register the underlying shares of the convertible promissory notes on its first filed registration statement subsequent to the issuance of such notes.  The notes will be secured by all of the assets of New Era Studios, Inc., our wholly-owned subsidiary, under a security agreement. Silvergraph may not prepay the notes and so long as the notes are outstanding, we must obtain written approval from the note holders for certain actions identified in the notes, including, but not limited to, the issuance of debt, acquisition or sale of a material asset and issuance of dividends to common stockholders. The security agreement will be null and void if the notes convert into a majority of Silvergraphs common stock. In addition, the holders of the notes have a right of first refusal on all equity financings contemplated by Silvergraph.  On June 30, 2008 Silvergraph and the holders of the 7% Notes due June 30, 2008 entered into a 2nd Amendment to the 7% Notes due June 30, 2008 that materially modified the Notes and extended them until August 31, 2008.  25   If the Company does not complete a merger transaction with a private company approved by the board of directors by the maturity date whereby the private company owns up to 96% of the surviving entity, the conversion price shall automatically be reduced to the lower of (i) $0.002 or (ii) the conversion price that would cause the majority holder of the notes to own upon conversion the number of shares of common stock of the Company determined to be 51% of the outstanding common stock on a fully-diluted basis and the remaining holders of the notes to own a pro rata number of common shares of common stock of the Company. In addition, the optional conversion price was lowered from $.08 to the lower of $.045 per share of common stock or the price per share of common stock based upon the formula outlines in the amendment.  Mirador Consulting, Inc. Agreement  Silvergraph entered into Consulting Agreement with Mirador Consulting, Inc., a Florida Corporation (Mirador) that was effective January 10, 2008. For a term of one year, Mirador will provide consulting services in connection with management consulting, corporate finance and shareholder communications and will use it best efforts to introduce Silvergraph to various members of the financial community. In consideration for Miradors service we will pay $1,000 per month until April 31, 2008 and $3,000 a month thereafter for the remainder of the one year term. We issued 1,000,000 shares to Mirador upon the signing of the Consulting Agreement and agreed to issue 800,000 shares to Mirador upon the closing of our combination with a private company provided the merger was completed on or before March 31, 2008. These shares are restricted and have piggy back registration rights. In the event that Mirador introduces Silvergraph to an institution or individual that provides funding to the Company, then we will pay five percent of the total amount of the net transaction to Mirador.  Mirador agreed to maintain the confidentiality of any material non-public information or data it might receive from Silvergraph, unless we provide written consent and approval for the disclosure. The parties agreed to indemnify each other for any damages caused by the other party and the consulting agreement may be terminated with or without cause by providing a thirty day written notification to the other party.  Quarters ended June 30, 2008 and 2007 (all amounts for these periods are unaudited)  Revenues.  Our revenues decreased $86,129 or 100%, to $0 for the three months ended June 30, 2008, as compared to $86,129 for the three months ended June 30, 2007. The decrease in revenues was due primarily to the lack of orders by our largest customer.  Gross profit.  Cost of sales consists primarily of raw material and component costs, manufacturing and supervisory labor, manufacturing overhead costs and royalties.  The gross profit for the three months ended June 30, 2008 was $0, a decrease of $8,208 or 100% as compared to $8,208 for the three months ended June 30, 2007. The Companys significant decrease in gross margin during the second quarter of 2008 versus 2007 was due to the lack of revenues in 2008.  Operating expenses.  Operating expenses consist of selling and marketing expenses, which are primarily salaries, commissions and promotional expenses, and general and administrative expenses, which are primarily salaries and bonuses, rent expense, depreciation and professional services such as legal and accounting fees.  Operating expenses decreased by $108,467 or 33% to $224,607 for the three months ended June 30, 2008 versus $333,074 for the three months ended June 30, 2007. The decrease in operating expenses was principally due to additional cost cutting measures enacted by the Company during 2008.   Other income (expense).  Other income (expense) principally consists of interest income and expense, as well as non-operational revenues or expenses earned or incurred by us. We had other expenses of $376,945 during the three months ended June 30, 2008 versus other expense of $454,770 during the three months ended June 30, 2007. The significant charges were due to additional interest expense, related to a beneficial conversion feature, recognized from the issuance of convertible notes payable during the three months ended June 30, 2007, and from the modification of the conversion rates for outstanding debt during the quarter ended June 30, 2008.  26   Six months ended June 30, 2007 and 2006 (all amounts for these periods are unaudited)  Revenues.  Our revenues decreased $62,663 or 67%, to $30,853 for the six months ended June 30, 2008, as compared to $93,516 for the six months ended June 30, 2007. The decrease in revenues was due primarily to the lack of orders by our largest customer.  Gross profit.  Cost of sales consists primarily of raw material and component costs, manufacturing and supervisory labor, manufacturing overhead costs and royalties.  The gross profit for the six months ended June 30, 2008 was $19,375, an increase of $71,549 or 137% as compared to $(52,174) for the six months ended June 30, 2007. The negative gross profit for the six months ended June 30, 2007 represented 56% of revenue for that same period as compared to the gross profit for the six months ended June 30, 2008 which represented 63% of revenue for that same period. The Companys significant negative gross margin during the first six months of 2007 was due to the lack of capitalization of normal fixed manufacturing costs.  Operating expenses.  Operating expenses consist of selling and marketing expenses, which are primarily salaries, commissions and promotional expenses, and general and administrative expenses, which are primarily salaries and bonuses, rent expense, depreciation and professional services such as legal and accounting fees.  Operating expenses decreased by $164,309 or 29% to $437,303 for the six months ended June 30, 2008 versus $601,612 for the six months ended June 30, 2007. The operating expenses during the six months ended June 30, 2008 represented 1,417% of revenue for that same period, versus the operating expenses for the six months ended June 30, 2007 which represented 6,433 % of revenue for that same period. The decrease in operating expenses was principally due to additional cost cutting measures enacted by the Company during 2008.  Other income (expense).  Other income (expense) principally consists of interest income and expense, as well as non-operational revenues or expenses earned or incurred by us. We had other expenses of $411,470 during the six months ended June 30, 2008 versus other income of $540,327 during the six months ended June 30, 2007. The significant charges were due to additional interest expense, related to a beneficial conversion feature, recognized from the issuance of convertible notes payable during the six months ended June 30, 2007, and from the modification of the conversion rates for outstanding debt during the quarter ended June 30, 2008.  Warrant  As of the date of this report, in addition to the outstanding warrants related to the convertible notes, we have an outstanding warrant to purchase a total of 488,170 shares of common stock, at a weighted average exercise price of $0.139 per share. New Era issued this warrant, which is to expire on January 26, 2011, to our former chief financial officer, Gary Freeman on June 12, 2006. This warrant contains anti-dilution provisions providing for adjustments of the exercise price and the number of shares of common stock underlying the warrant, registration rights and piggy-back registration rights. In addition, under the warrant we may cancel Mr. Freemans right to exercise up to 50% of the shares of our common stock in the event that he or Bandari Beach Lim & Cleland LLP, of which Mr. Freeman is a partner, cancels a letter of understanding between Bandari and New Era for reasons not involving nonpayment of fees to Bandari, material adverse alteration of Mr. Freemans duties as chief financial officer, breach, fraud or other designated reasons. Our right to cancel up to 50% of Mr. Freemans exercise rights underlying the warrant decreased ratably each month beginning July 1, 2006 and ending June 30, 2007, accordingly we no longer have the ability to cancel any percentage of Mr. Freemans exercise rights.  Inflation and Seasonality  Inflation has not been material to us during the past five years. Although seasonality has not historically been material, we believe that as our business expands, seasonality will begin to affect our quarterly results of operations.  27   Critical Accounting Policies  The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires us to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. On a regular basis, we review the accounting policies we use in reporting our financial results.  A critical accounting policy is one that is both material to the presentation of our combined financial statements and requires us to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:  · we have to make assumptions about matters that are highly uncertain at the time of the estimate; and  · different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on the our financial condition or results of operations.  We cannot make estimates and assumptions about future events or determine their effects with certainty. We base our estimates on historical experience and on various other assumptions that we believe to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as we obtain additional information and as our operating environment changes. These changes have historically been minor and we have included them in the combined financial statements as soon as they became known. In addition, we periodically face uncertainties, the outcomes of which are not within our control and we will not know for prolonged periods of time. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our combined financial statements are fairly stated in accordance with accounting principles generally accepted in the United States of America, and present a meaningful presentation of our financial condition and results of operations.  We believe that the following are our critical accounting policies:  Revenue Recognition  We recognize revenue from gross product sales, including freight charges, and revenues from the license of products, in compliance with Staff Accounting Bulletin No. 101 and No. 104 which require that:  · title and risk of loss have passed to the customer;  · there is persuasive evidence of an arrangement;  · delivery has occurred or services have been rendered;  · the sales price is fixed and determinable;  · collectibility is reasonably assured; and  · customer acceptance criteria, if any, have been successfully demonstrated.  Accounts Receivable  We extend credit to our customers. We generally do not require collateral. We provide for credit losses in the consolidated financial statements based on our evaluation of historical and current industry trends. Although we expect to fully collect amounts due, actual collections may differ from estimated amounts.  28   Inventories  We state inventories at the lower of cost or market. We determine cost on a standard cost basis which approximates the first-in, first-out (FIFO) method. We give appropriate consideration to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value.  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Not applicable.  ITEM 4T. CONTROLS AND PROCEDURES  Disclosure Controls and Procedures  We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission (SEC). This information is accumulated and communicated to our executive officers to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and concluded that our disclosure controls and procedures were effective.  Managements Annual Report on Internal Control over Financial Reporting  Our Chief Executive Officer and Chief Financial Officer are responsible to design or supervise a process to be effected by our board of directors that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The policies and procedures include:  · maintenance of records in reasonable detail to accurately and fairly reflect the transactions and dispositions of assets,  · provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors, and  · provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.  Our management determined that there were no changes made in our internal controls over financial reporting during the second quarter of 2008 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.  We do not expect that our disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that we have detected all control issues and instances of fraud, if any. The design of any system of controls also is based in part upon assurance that any design will succeed in achieving its stated goals under all potential future conditions. However, controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, we may not detect misstatements due to error or fraud.  29   PART II  OTHER INFORMATION  ITEM 1. LEGAL PROCEEDINGS  We know of no material, active or pending legal proceedings which we are a party to, or which our property is subject to.  ITEM 1A. RISK FACTORS  The business, financial condition and operating results of Silvergraph International could be adversely affected by any of the following factors, in which event the value of the equity securities of Silvergraph International could decline, and investors could lose part or all of their investment. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to management, or that management currently thinks are immaterial, may also impair future business operations. For purposes of the discussion of the following risk factors, references to we and our shall include, unless otherwise indicated, Silvergraph International, Inc. as well as New Era Studios, Inc. (as statutory successor in interest to Silvergraph LGT, LLC) as it existed prior to the share exchange.  We have a history of losses and nominal operating results.  Silvergraph International, formerly known as Pinecrest Services, Inc., commenced operations as a shell in 1986, but has had no significant business prior to the share exchange. New Era has, since inception through June 30, 2008, incurred an accumulated deficit of $5,071,980.  We can offer no assurance that we will operate profitably or that we will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as the level of competition and general economic conditions.  Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We can give no assurance that we will be able to operate on a profitable basis which may lead to the entire loss of an investment in our common stock.  Due to the nature of our business and the early stage of our development, an investment in our securities is highly speculative. We are in the business of developing and distributing wall art. The success of our business will depend on our ability to introduce and sell our wall art products to consumers, develop new product extensions and applications, and raise additional capital for operations, future expanded marketing and further product development. We have focused much of our business on developing and refining our patent-pending technology. We are currently prosecuting a patent application to protect our proprietary intellectual property, which to date we have not received patent approval. We have not realized a profit from our operations and there is little likelihood that we will realize any profits in the short or medium term. In addition, our independent registered public accountants have raised substantial doubts in connection with their opinion related to our audited financial statements as to our ability to continue as a going concern.  We expect to continue to incur development and operating costs. Consequently, we expect to incur operating losses and negative cash flows until our wall art products gain market acceptance, if ever, sufficient to generate a sustainable level of income.  We have had negative cash flows from operations since inception. We will require significant additional financing, the availability of which cannot be assured, and if we are unable to obtain such financing, our business may fail.  To date, we have had negative cash flows from operations and have depended on sales of our equity securities and debt financing to meet our cash requirements. Our ability to develop and, if warranted, commercialize our technologies, will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. In addition, our independent registered public accountants have raised substantial doubts in connection with their opinion related to our audited financial statements as to our ability to continue as a going concern. Specifically, in order to continue as a going concern we will need to raise additional funds to:  30   * support our planned growth and carry out our business plan;  * address competing technological and market developments; and  * market and develop our wall art products.  We may not be able to obtain additional equity or debt financing on acceptable terms as required. Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements. If we require, but are unable to obtain, additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions, withstand adverse operating results and compete effectively. More importantly, if we are unable to raise further financing when required, we may be forced to scale down our operations and our ability to generate revenues may be negatively affected.  If we are unable to develop market share and generate significant revenues from the commercialization or licensing of our technology, then our business may fail.  Our failure to compete effectively and generate income through the commercialization of our products may adversely affect our ability to generate revenue. We are introducing our wall art products essentially as new products to an untested consumer market. We do not know whether our products will generate widespread acceptance. If consumers do not purchase our products, we will not be profitable subjecting our investors to a loss of their investment. Our competitors may develop or utilize similar technologies, which will enable them to compete directly against us. Many of our competitors have greater financial, technical, sales and marketing resources, better name recognition and a larger customer base than ours. Some of our competitors may conduct more extensive promotional activities and offer lower commercialization costs to customers than we do, which could allow them to gain greater market share or prevent us from establishing and increasing our market share. Increased competition in the wall art industry may result in significant price competition, reduced profit margins or loss of market share, any of which may have a material adverse effect on our ability to generate revenues and successfully operate our business. In the future, we may need to decrease our prices if our competitors lower their prices. Our competitors may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Such competition will potentially affect our chances of achieving profitability.  Our inability to complete our product development activities successfully may severely limit our ability to operate and finance operations.  Commercialization of our wall art products will require additional research and development. We believe that the United States, Canada and Mexico will be our principal markets for our products, although we may elect to expand into Western Europe and elsewhere. We may not be able to successfully market our products. We, and any of our potential collaborators, may encounter problems and delays relating to research and development, regulatory approval and intellectual property rights of our technology. Whether or not any of these events occur, we may not have adequate resources to continue operations for the period required to resolve the issues delaying commercialization and we may not be able to raise capital to finance our continued operation during the period required for resolution of that issue.  We hold no patents on our proprietary technology and if we are not able to protect our proprietary technology, we may lose our competitiveness and suffer a material adverse effect.  We currently have one patent application for our technologies. We rely on this patent application and trade secrets to protect our proprietary intellectual property. While we believe that we have adequately protected our proprietary technology, and we intend to take all appropriate and reasonable legal measures to protect it in the future, the use of our technology by a competitor could have a material adverse effect on our business, financial condition and results of operations. Furthermore, regulatory authorities may not grant us patents on our provisional or future patent applications. Also, the scope of any future patent may not be sufficiently broad to offer meaningful protection. In addition, third parties may successfully challenge, invalidate or circumvent patents granted to us so that such patent rights may not create an effective competitive barrier. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights.  31   Our ability to compete successfully and achieve future revenue growth will depend, in part, on our ability to protect our proprietary technology and operate without infringing upon the rights of others. We may not be able to successfully protect our proprietary technology, and our proprietary technology may otherwise become known or our competitors may independently develop similar technology. Competitors may discover novel uses, develop similar or more marketable technologies or offer services similar to our services at lower prices. We cannot predict whether our technologies and services will compete successfully with the technologies and services of existing or emerging competitors.  We may become subject to intellectual property litigation which may be time-consuming and costly.  Our success depends in part on our ability to develop commercially viable products without infringing the proprietary rights of others. Although we have not been subject to any filed infringement claims, other patents could exist or could be filed which may prohibit or limit our ability to market our products or maintain a competitive position. In addition, we may need to bring legal claims to enforce or protect our own intellectual property rights. In the event of an intellectual property dispute, we may have to litigate. Regardless of whether we are successful, intellectual property litigation, including claims against us lacking merit, may be time-consuming, costly and may divert our attention from developing and marketing our products. An adverse outcome could subject us to significant liabilities to third parties, result in the loss of goodwill associated with our business or force us to alter, curtail or cease the development and commercialization of our products and technology.  Our current or future manufacturers could fail to fulfill our orders for certain materials which would disrupt our business, increase our costs and could potentially cause us to lose our market.  Because our inks are proprietary, we will initially depend on one manufacturer in California to produce and supply our inks. In addition, we also will initially depend on one manufacturer in New Hampshire to produce and supply our canvases. There is a potential that these two manufacturers will not be able to produce our inks and canvasses in a timely manner or in sufficient volumes. These manufacturers may also fail to produce the inks and canvasses to our specifications or in a workmanlike manner and may not deliver them on a timely basis. We are in the process of identifying other manufacturers to assure us of alternative sources of supply. Any change in manufacturers could disrupt our business due to delays in finding a new manufacturer, providing specifications and testing initial production.  Our board has not made a determination of fairness regarding related-party transactions.  In prior years we entered into transactions with our president, director and 22.5% shareholder, William W. Lee, and other entities that he controls. Our board has not made a determination as to whether these related-party transactions were made on terms no less favorable than terms we could have obtained from unaffiliated third parties. Our board has adopted a policy that any future transactions between us and our officers, directors or principal stockholders will require the approval of a majority of the disinterested directors and will be on terms no less favorable than we could obtain from an unaffiliated third party.  The loss of our customer, Home Interior & Gifts, could result in reduced revenues for us that we may not be able to replace.  Currently, we are highly dependent on one customer, Home Interiors & Gifts, located in Carrollton, Texas. This customer represented 70% of our revenue in 2006 and 47% in 2007. We do not have a long-term contract with the client, and as such, the client could terminate the relationship at any time. In the event that we lose this customer, we may be unable to replace in whole or in part the lost revenue generated from that customer and necessarily the net income received therefrom.  To date, we have not consummated a contract with any new customers who generate significant revenue and income for us, but we intend to diversify the sources of our revenue through the release of our exclusive collection of images to the public as soon as practicable.  32   Our marketing strategies may not be successful which would adversely affect our future revenues and profitability.  Our revenues and future depend on the successful marketing of our wall art products. We cannot assure you that consumers will have an interest in our products. We initially plan to use direct marketing to sell our products via television commercials, magazine and newspaper advertising and the Internet. Our commercials may not generate sufficient revenue to continue to air them. If our marketing strategies fail to attract customers, our product sales will not produce future revenues sufficient to meet our operating expenses or fund our future operations resulting in the potential failure of our business.  If we fail to effectively manage growth and the commercialization of our wall art products, we may harm our future business results and we may strain our managerial and operational resources.  As we proceed with the development of our technology and the expansion of our marketing and commercialization efforts, we expect to experience significant growth in the scope and complexity of our business. We will need to add staff to market our products and services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We anticipate that we will need to hire additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a material adverse effect on our business and financial condition.  Our failure to retain key personnel may result in our inability to manage and implement our business plan.  The departure of any of our management or any significant technical personnel or consultants we hire in the future, the breach of their confidentiality and non-disclosure obligations, or the failure to achieve our intellectual property objectives may have a material adverse effect on our business, financial condition and results of operations. We believe our success depends upon the knowledge and experience of our management and our ability to market our existing wall art products and to develop new technologies to improve our products.  We are highly dependent upon our management personnel such as James R. Simpson and William W. Lee because of their experience developing and marketing wall art products. The loss of the services of one or more of these individuals may impair our ability to operate. We have not purchased key man insurance on any of these individuals, which insurance would provide us with insurance proceeds in the event of their death. Without key man insurance, we may not have the financial resources to develop or maintain our business until we could replace the individual or to replace any business lost by the death of that person.  Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could lead to loss of investor confidence in our reported financial information.  Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with this annual report we are required to furnish a report by our management on our internal control over financial reporting. If we cannot provide reliable financial reports or prevent fraud, then our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly. In order to achieve compliance with Section 404 of the Act within the prescribed period, we have engaged in a process to document and evaluate our internal control over financial reporting, which has been challenging. We cannot assure you as to our independent auditors conclusions at December 31, 2009 with respect to the effectiveness of our internal control over financial reporting. There is a risk that our independent auditors will not be able to conclude at December 31, 2009 that our internal controls over financial reporting are effective as required by Section 404 of the Act.  If we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud.  33   Investors in our common stock may suffer future dilution from warrant exercises.  Future dilution to our shareholders may occur from warrant exercises. To date, we have granted warrants to purchase 488,170 shares of our common stock to our principal financial officer and granted warrants to purchase 143,000 shares of our common stock to investors in the convertible note offering.  If we issue additional shares in the future, it will result in dilution for our existing shareholders.  Our articles of incorporation authorize the issuance of up to 100,000,000 shares of common stock. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders.  A majority of the shareholders have voted to authorize our board of directors, in its discretion, to affect a reverse split of our common stock in the range of 30 to 66 shares for each one share while maintaining our authorized shares at 100,000,000.  A majority of the shareholders have voted to authorize our board of directors, in its discretion, to affect a reverse split of our common stock in the range of 30 to 66 shares for each one share while maintaining our authorized shares at 100,000,000.  If our board of directors implements a reverse stock split it will affect all issued shares of our common stock and outstanding rights to acquire our common stock while our authorized shares will remain the same at 100,000,000. We cannot assure that the market price per share of our common stock after the reverse stock split will remain unchanged or increase in proportion to the reduction in the number of shares of our common stock issued before the reverse stock split. Accordingly, our total market capitalization after the reverse stock split may be lower than the total market capitalization before the reverse stock split. The market price of our common stock may decline after we affect the reverse stock split. The percentage decline may be greater than would occur in the absence of a reverse stock split. Furthermore, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding after the reverse stock split.  Additionally, we cannot assure that the reverse stock split will result in a per share price that will attract institutional investors or investment funds or that such share price will satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve.  34   The SEC's penny stock regulations may restrict trading of our stock, which may limit a stockholder's ability to buy and sell our stock.  The SEC has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The penny stock rules, which initially govern our securities, impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual incomes for the last two years and anticipated incomes for this year exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. A broker-dealer must provide to a customer orally or in writing the bid and offer quotations, and the broker-dealer and salesperson compensation information prior to effecting the transaction. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.  NASD sales practice requirements may also limit a stockholder's ability to buy and sell our stock.  In addition to the penny stock rules, the National Association of Securities Dealers has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit an investors ability to buy and sell our stock and may have an adverse effect on the market for our shares.  Our common stock is illiquid and factors unrelated to our operations may negatively impact the price of our common stock.  Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There can be no assurances that a sufficient market will develop in the stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  None  ITEM 3. DEFAULTS UPON SENIOR SECURITIES  None  35   ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  On May 8, 2008, pursuant to Nevada Revised Statutes §78.320, a majority of the outstanding shares of common stock of the Company approved a reverse stock split of the Companys issued and outstanding shares. Shareholders representing 32,300,715 shares, 52.6% of the Companys 61,450,976 shares outstanding, approved the action by written consent. The reverse stock split ratio shall be determined by the board of directors in its discretion as necessary to satisfy the Companys potential obligation to have a total of 1,500,000 common shares issued and outstanding upon closing of an anticipated acquisition and/or merger; however, the ratio shall be in the range of 30 to 66 shares for each one share. The reverse split shall not lower the authorized shares of the Company which shall remain at 100,000,000. Such reverse split, if declared by the board of directors, shall become effective 20 days after mailing of a Schedule 14C Information Statement to all of the Companys shareholders.  ITEM 5. OTHER INFORMATION  None  ITEM 6. EXHIBITS  Part I Exhibits  No. Description 31.1 Chief Executive Officer Certification 31.2 Principal Financial Officer Certification 32.1 Section 1350 Certification  Part II Exhibits  No. Description 3.1(i) Articles of Incorporation (Incorporated by reference to exhibit 3.1(i) to Form 10-SB filed on July 6, 2000) 3.1(ii) Amendment to Articles of Incorporation (Incorporated by reference to exhibit 3.1(ii) to Form 8-K filed on June 23, 2006) 3.2 Bylaws (Incorporated by reference to exhibit 3.2 to Form 10-SB filed on July 6, 2000) 10.1 Form of Conversion Agreement, dated January 18, 2008 (Incorporated by reference to exhibit 10.1 to Form 10-K filed April 15, 2008) 10.2 Subscription Agreement between Silvergraph and Subscribers, dated January 25, 2008 (Incorporated by reference to exhibit 10.1 to Form 8-K filed February 7, 2008) 10.3 Form of Convertible Promissory Notes between Silvergraph and Holders, dated February 1, 2008 (Incorporated by reference to exhibit 10.3 to Form 10-K filed April 15, 2008) 10.4 Consulting Agreement between Silvergraph and Mirador Consulting, Inc., effective February 6, 2008 (Incorporated by reference to exhibit 10.4 to Form 10-K filed April 15, 2008) 10.5 1st Amendment to the 7% Notes Due May 31, 2008 between Silvergraph and Holders, dated April 4, 2008 (Incorporated by reference to exhibit 10.5 to Form 10-K filed April 15, 2008) 10.6 2nd Amendment to the 7% Notes Due June 30, 2008 between Silvergraph and Holders, dated June 30, 2008 (Incorporated by reference to exhibit 10.1 to Form 8-K filed July 7, 2008) 10.7 Termination Agreement between Silvergraph, New Era and Executives, dated April 11, 2008 (Incorporated by reference to exhibit 10.6 to Form 10-K filed April 15, 2008)  36   SIGNATURES  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  SILVERGRAPH INTERNATIONAL, INC.



By: /s/ James R. Simpson
James R. Simpson, Chief Executive Officer
Secretary and DirectorDate: August 19, 2008By: /s/ William W. Lee
William W. Lee
President and DirectorDate: August 19, 2008   37